Econintersect: HSBC reports that India is approaching a “broad stagnation of 
manufacturing operating conditions“. Exports continued to support manufacturing and consumer goods “signalled higher levels of new orders, but the rate of expansion was modest“. Overall the India Manufacturing PMI™ reading sagged to 50.1 for July, down from 50.3 in June. The PMI has indicated expansion for 52 consecutive months since the end of the Great Financial Crisis (GFC), although in had a low just above 50 in late 2011.
The key points from the Markit report:
- Operating conditions broadly unchanged since June
- Third consecutive decline in production volumes
- New orders decrease, but exports rise for eleventh month running
Commenting on the India Manufacturing PMI™ survey, Leif Eskesen, Chief Economist for India & ASEAN at HSBC said:
“Activity in the manufacturing sector was broadly flat in July. Output fell by less, but order flows weakened led by slower growth in export orders. Moreover, inventory accumulation and employment growth slowed. Of concern, inflation pressures firmed for both input and output prices, partly on the back of higher imported inflation due to the weaker currency. The data suggests that the RBI will likely have to keep policy rates on hold for a while given lingering inflation risks and that the recently introduced currency stabilization measures will not be lifted anytime soon.”
Here is the full summary from the Markit press release:
July’s seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index™ (PMI™) posted only fractionally above the 50.0 no-change threshold. Down from 50.3 in June to 50.1, the latest reading was indicative of a broad stagnation of manufacturing operating conditions in India.
Output fell for the third consecutive month in July, amid evidence of falling new orders, tough economic conditions and raw material shortages. The rate of decline, however, was fractional and eased since June. Lacklustre demand conditions had resulted in a further contraction of incoming new work, with sector data highlighting declines in the intermediate and investment goods sectors. Conversely, consumer goods producers signalled higher levels of new orders, but the rate of expansion was modest.
New export orders rose during July, taking the current expansionary sequence to 11 months. Panel members stated that foreign demand was maintained, but commented on increased competition. Subsequently growth of export business was modest and the weakest in three months.
Purchasing activity in the Indian manufacturing sector rose in July. That said, the pace of increase was marginal and the slowest in the current 52-month expansionary sequence. Weaker growth of input buying was mainly linked to falling new work intakes. Of the three monitored sub-sectors only one registered higher buying activity, namely consumer goods.
Manufacturers indicated slower supplier delivery times in July, suggesting that the depreciation of the rupee meant vendors were reluctant to import raw materials. Subsequently, stocks of purchases fell for the first time since April 2012. The rate of depletion was, however, only slight. Meanwhile, holdings of finished goods were broadly unchanged in July. In line with scarce raw materials at suppliers and powercuts, backlogs of work were accumulated for a further month in July. The rate of increase was solid, but the weakest in three months.
July data highlighted a further expansion of employment levels in the Indian manufacturing sector. The rate of job creation remained slight. Payroll numbers rose in the consumer goods sector, stagnated at intermediate goods producers and fell at investment goods firms.
Finally, inflationary pressures persisted in July. Output prices rose at the fastest rate since February, as firms attempted to pass on increased cost burdens.
Amid reports of higher prices paid for metals, chemicals, plastic and paper, overall input prices rose sharply in July, and at the strongest rate in ten months. Manufacturers indicated that imported raw material costs were greater, in particular due to a depreciation of the rupee.
Sources:
- Indian manufacturing sector stagnates in July as output and new orders (HSBC Purchasing Managers Index Press Release, Markit, 01 August 2013)
- HSBC India mfg sector July PMI stagnates; nears contraction (moneycontrol.com, 01 August 2013)
